Career military man explains how he earns $80,000 a year in passive income

Meet Rich Carey, an officer in the U.S. Air Force for 18 years and poster boy for the “FIRE” — or financial independence, retire early — movement.

Needless to say, the military isn’t the first place most millennials would look for inspiration in achieving “FIRE” glory, but they could do worse than Carey when it comes to building passive income with minimal effort.

In a guest post on author JL Collins’s “The Simple Path to Wealth” blog this week, Carey details how he managed to navigate a full-time military career while, at the same time, setting himself up for a stress-free retirement. “For me, real-estate investing takes no work,” he wrote. “I mean like NONE.”

For all his nonwork, Carey says he typically earns more than $80,000 a year from an “empire,” as he jokingly puts it, of 20 homes he owns in Montgomery, Ala.

The kicker: He’s never even seen most of them in person, opting to use Zillow.com — from South Korea or Guam or wherever he’s stationed — to find homes where the math works. He then uses a real-estate agent he’s carefully vetted to lowball several potential properties and waits for sellers to bite.

If they do, which he says is rare, and if the property looks like a winner, Carey continues negotiating a cash purchase and offers to close in 10 days. Sellers tend to accept deeper discounts when tempted with that offer. “When you pay cash for a property, there’s often only one document to sign,” he said. “It’s so easy!”

“The Simple Path to Wealth” blog

Carey’s second house, which he bought for $45,000.

As for the math, Carey points to the 1% and 50% rules as general guidelines that are useful for those looking to buy a rental property.

Basically, the 1% rule means you should be able rent a property for at least 1% of the acquisition price, which also includes the cost of getting it move-in ready. So, put simply, if you buy a property for $90,000, then put $10,000 into it, you should be able to rent it out for at least $1,000 a month.

The 50% rule means you should be prepared to spend 50% of what you collect in rent on expenses. In other words, of that $1,000 in the example above, $500 should be earmarked for expenses.

Carey says a house meeting those criteria delivers an ROI of about 6%. In his case, many of the homes actually return 10%, so there’s some upside there.

For example, the first house he bought, in 2013, went for $30,000. He spent $15,000 fixing it up before renting it for $850 a month. Not bad. The second house he bought for $45,000 was move-in ready and rents for $900.

‘All I do is wait for a big, fat check to come at the end of the month, and wrestle with taxes in March or April each year.’

Rich Carey

The key to his hands-off involvement — and this can be challenging — was finding someone he could trust to do the day-to-day maintenance.

“It’s all done by my management company,” Carey explains. “It’s taken time to get to the point where they know when to call me and not call me, but we’ve got it down to a science now. Eventually we got to the point where now they make most of the decisions for me, unless it is something very expensive.”

He says he’s surprised if he has to answer one email a month about his 20 houses.

“All I do is wait for a big, fat check to come at the end of the month, and wrestle with taxes in March or April each year,” Carey said, adding that his tax bill, of course, can be pretty ugly considering he doesn’t have any mortgage interest to deduct from income. “I guess that’s not a bad problem to have!” he said.

Yes, he owns all these homes outright, paid for with his modest military income and a commitment to saving and investing.

“Real-estate investors think I’m insane for not using leverage to get-rich-quick,” Carey says. “On this blog, and in the FIRE community, I think debt-free real estate makes a lot of sense. I can’t be foreclosed on, and I can’t go bankrupt. I have very little risk.”

Not owing any money on his properties gives him an “amazing peace of mind” with his retirement from military duty coming up in the summer of 2020.

Carey makes it sound easy, and maybe it is, but followers of “The Simple Path to Wealth” had their doubts.

“All I have to do is: have lots of cash so I can buy houses outright. And find a team that I can trust and that will do everything for me while I travel the world and fill my pockets with money. Why no one else thought of this?” one reader asked.

Carey answered by summing up how he was able to raise enough cash to start building his portfolio without the help of a big paycheck.

“The reason I was in a position to buy these houses was after a career of saving, being frugal, and investing well,” he replied, “I invested in the S&P 500 index fund